European Central Bank Governing Board member Jose Manuel Gonzalez-Paramo told investors this morning that the bank’s latest big move to stabilise the sovereign debt crisis is not just the latest in a series of measures that buy EU leaders time to address the crisis.
“It’s not the kind of bazooka that investors were calling for. It’s possibly more than that.”
Speaking at the Bloomberg Link conference on sovereign debt, he noted that the LTRO was not a long-term solution, joking that “if banks were doing this for a long time they would be out of business.” However, he added, worries that banks were not spending the money they’ve been borrowing from the ECB and instead placing it in the bank’s deposit facility was overblown. He said, “Just a very small proportion of the funds injected end up in the deposit facility.”
Also unreasonable, he argued, are claims that the central bank was taking on too much risk by purchasing PIIGS bonds and handing out cash on risky collateral. “What is the point of talking of [such] risk at this stage? Sovereign paper is safe paper.”
However, the ECB Governing Council member also affirmed that the ECB will make interest rates “as low or as high as needed,” if such policies were called for to preserve price stability.
Gonalez-Paramo emphasised, however, that things are looking up for Europe. He waxed optimistic about the prospects of growth in the eurozone in the coming year. “Chances the euro will surprise to the upside in 2012 are much higer than they were in the summer,” although he noted that “risks are [still] to the downside, coming from the global economy and coming from financial tensions.”
Europe has learned from its experiences in the crisis, he concluded. “Only through crisis is real progress.”